Emirates NBD Chief Investment Officer Gary Dugan reveals Global Investment Outlook for 2017
Under the theme ‘Dealing with Global Disruptors’, Gary aimed to identify how investors can manage risk and rewards from this new disruption paradigm.
Speaking at the media briefing, Gary commented, “2016 has proven to be a year where the global economy has seen many a disruption and challenge to perceived conventional wisdom. On the political front, Brexit and Donald Trump’s victory were major surprises to the financial markets and precipitated significant shifts in the valuations of currencies and asset classes. Technology has continued to disrupt industries with such things as driverless cars and robots now seen as much closer to the norm rather than the aspiration.
“While 2017 will in all likelihood start with a lot of hope and promise, the disruptions to conventional wisdom are unlikely to abate. We believe that 2017 may be a year of two halves. In the first instance, the year starts with lots of positivity but there is the risk that things may start to change as the year progresses. However, the good news is that although the focus of the mostly positive outlook has largely been in the US, other parts of the world have also seen better economic data of late. European industrial and consumer confidence have been rising in recent months and in Japan, there is a more consistent pattern of improving macro data flow. In conclusion, let’s enjoy the good news and hope that it finds momentum to rebuild confidence through the year,” concluded Gary.
Highlights of the Emirates NBD 2017 Global investment Outlook are:
- We continue with our overweight recommendation on equities, which we established just ahead of the US Presidential election. Analysts are becoming increasingly upbeat about the outlook for corporate profits, which helps to mitigate some of the fears of relatively high valuations in some markets.
- Bonds are the losers from the current wave of optimism about US growth. We fear that the US 10 year government bond yield could push as high as 3.0% at some stage during the year before coming to rest at around 2.8%. Given the relatively tight US labour market, there is a fear in the markets that Mr. Trump’s policies can only increase the inflation pressures in the economy. There is a positive in that the pickup in inflation expectations has at the very least taken away some of the deflation mentality that had prevailed in the global economy. Whether higher inflation expectations remain sticky will depend heavily on whether Mr. Trump’s policies lead to a sustained period of above-potential growth.
- Credit markets could still do relatively well. Reasonable global growth would help higher risk bonds such as high yield bonds continue to give solid returns even if government bonds struggle. Investors still have a search for yield mentality and the better global growth projections should keep default rates under control.
- Politics, particularly in Europe still has the potential to create problems for financial markets. The Italian referendum has again focused on the anti-EU parties in Europe which have become emboldened by the Brexit vote in the UK. Any sense that the EU could fragment will cast a dark shadow over European asset markets and the euro.
- In the Middle East, markets will be hoping for a stronger oil price and evidence that reform and change in the major economies are starting to see a payoff in higher revenue and controlled spending growth. We believe that as the year progresses, there should be better news on the oil price with the delays and cancellations of oil and gas projects starting to weigh on supply growth which in turn should lead to a firming of crude prices.
- In the first part of 2017, it is hard to bet against the dollar given a very high probability of higher rates and at the very least a perception that US growth will lead the developed countries. The euro, in particular, faces downside risk from the calendar of important elections that could deliver significant protest votes. Emerging market currencies remain vulnerable until Donald Trump sets out a clear vision on if and when he puts in place protectionist measures against countries such as China.
- Gold has ended the year on a soft note and may remain subdued in the early months of 2017. However, we would remind investors that gold is a store of long-term value and an insurance policy against untoward events. Investors should see periods of marked weakness in the gold price as a buying opportunity. Gold is believed to offer some protection against inflation scares and protect investors against significant financial market and geopolitical upset. We continue to advise investors to build holdings in gold as a risk hedge.
The annual Emirates NBD CIO Outlook is an advisory blueprint covering investment opportunities and key indicators across the world economy and financial markets, based on which Emirates NBD’s team of advisors, traders and analysts make recommendations on financial transactions and investments to the bank’s private banking clients.